1. Field of the Invention
The present invention relates to an improved system and mechanism for implementing an employee stock ownership plan involving a commercial entity, while, at the same time, substantially reducing the operating costs of that same commercial entity. The mechanism of the present invention includes apparatus, methods, and data structures pertaining to data processing with digital electrical computer adapted to carry out the accounting, modeling, financial computing and communications related thereto. In particular, the present invention provides an improved employee stock ownership plan, while, at the same time, providing a funding process for a commercial entity having ongoing commodity requirements.
2. Known Prior Art
An employee stock ownership plan (ESOP) as defined by the Employee Retirement Income Security Act (ERISA) is a stock bonus plan or a combination stock bonus and money purchase plan designed to invest primarily in the employer""s equity securities. Employee stock ownership plans provide advantages both to commercial entities and to their employees, one advantage to the employees is that they acquire an equity ownership interest in the company. An advantage to the commercial entity is the ability to obtain equity financing from internal sources.
An employee stock ownership plan may desire to purchase a large amount of securities from a key shareholder or, perhaps, from the corporation itself. Typically, the employee stock ownership plan has insufficient assets to pay for these purchases, so it must borrow funds from an institutional lender. This type of concept traditionally constitutes the basis for xe2x80x9cleveragedxe2x80x9d employee stock ownership plan transactions.
In recent years, the use of employee stock ownership plans has declined and been criticized, primarily due to exploitation through excessive debt leveraging and other abuses. The practice of buying a company, taking on debt and encumbering the employee stock ownership plan with highly leveraged tax-advantaged debt was regularly practiced.
Congressional efforts have attempted to reduce this perceived misuse of employee stock ownership plans. For instance, recent changes to ERISA require that, for tax-advantaged sales to an employee stock ownership plan, an entity must hold stock for three years prior to any sale to an employee stock ownership plan. Further, immediately following the sale of any stock to a plan, the employee stock ownership plan must now own at least thirty percent (30%) of the company, and the proceeds from the sale of stock must be reinvested in a qualifying U.S. security within fifteen (15) months. Additionally, an employee stock ownership plan must own at least fifty percent (50%) plus one (1) share of the stock in a company in order to engage in tax-advantaged borrowing.
As a result, the use of employee stock ownership plans has diminished because the employee stock ownership plan must have controlling interest in the company in order to borrow on a tax-advantaged basis. Also, new restrictions on the use of borrowed funds now exist. Further, there are now restrictions on the amount of pre-tax profits that can be paid into an employee stock ownership plan.
A. Objects of the Invention
A principal object and purpose of the present invention is to create a system which facilitates providing employees with equity in the company, as part of an employee stock ownership plan, preferably with minimal to no leverage through debt. At the same time, the present invention facilitates compliance with all recent legislative, judicial, and regulatory mandates.
It is a further principal object and purpose of the present invention to provide an improved employee stock ownership plan, combined with a commodity funding mechanism (i.e., machine, as in a computer system), for a commercial entity.
It is a further object and purpose of the present invention to provide an employee retirement plan utilizing an employee stock ownership plan and the commodity funding mechanism.
It is still another object of the present invention to provide a multiplicity of cooperating digital electrical computer systems and communications systems for carrying out a corresponding reduction in the commodity price to the company and provision of incremental ownership of the commercial entity by its employees over a predetermined time period.
B. Summary of the Invention
These and other objects of the present invention, as would be appreciated in overcoming the limitations of the prior art by the instant mechanism, are accomplished by cooperating digital electrical computer systems, one of which handles computing for principally four (4) primary entities, another for each commodity supplier or suppliers, as well as one for respective financial institutions such as a bank, and insurance provider, etc.
One entity can be labeled a xe2x80x9ccommercial entity,xe2x80x9d such as a corporation or partnership, which may have equity interests that are issued to shareholders, partners or other equity owners. The present invention applies particularly well to commercial entities involving manufacturing or services which utilize one or more commodities on a regular, ongoing basis.
A second entity can be termed a xe2x80x9ccommodity trustxe2x80x9d, which is formed to hold assets for the investor entity. An investor entity may be an individual, a partnership, a corporation or any combination thereof.
A third entity can be termed an xe2x80x9cEmployee Stock Ownership Planxe2x80x9d (ESOP) formed, in accordance with Internal Revenue Code provisions, as a nominal employee stock ownership plan. The initial commercial entity equity holding by the ESOP shall be small. The ESOP is incrementally funded by a contribution of pre-tax and/or post-tax earnings by the commercial entity.
A fourth entity can be termed an xe2x80x9cinvestor entityxe2x80x9d. Over a predetermined period of time, the ESOP will purchase from the investor entity in the commodity trust all shares of the commercial entity equity released from the commodity trust as earned by the investor entity by making commodity purchase payments.
As an overview, the assets or investments held by the commodity trust will include cash or other reserves sufficient to provide funds to cover a predetermined share of the cost of the commodity requirements of the commercial entity for a predetermined period of time. The commodity trust will initially hold in trust a substantial amount of the equity of the commercial entity. The commodity trust agrees to pay for a predetermined percentage of the commodity requirements of the commercial entity for a predetermined period of time. The commercial entity places periodic orders for the commodity with the trust and remits payment for the predetermined percentage of the total purchase price to the commodity trust. The commodity trust then supplements the payment advanced by the commercial entity with the predetermined amount necessary to fill the order and the commercial entity thereupon makes payment in full to the commodity supplier(s).
The commodity trust continually funds its share of the purchases the ongoing commodity requirements of the commercial entity from commodity suppliers as stated above for the predetermined life of the mechanism of the invention.
The commodity trust will release the commercial entity equity on a prorata basis as earned, to the investor entity, in proportion to the expenditure of funds by the trust during specific time periods. The ESOP then exercises a binding call on and purchases all of the released commercial entity equity from the investor entity, at the publicly traded price, or at a price determined periodically and subject to independent outside valuation and fairness opinions as required by law.
The investor entity agrees to sell to the ESOP pursuant to a binding call, all of the commercial entity equity earned and released from the trust over the life of the mechanism of the invention. When all assets in the trust are exhausted, the useful life of the trust will cease.
More particularly, the present invention is directed to mechanism-implemented (i.e., computer implemented) aspects of an approach to efficiently carrying out the complex and long-term transactions in the commodity funding approach. This includes providing respective digital electrical computer systems for each of the entities (or equivalents like having fewer machines run more than one program) to carry out the commodity funding and ESOP purchase transactions.
These and other objects can be implemented by means including a computer system for monitoring the monthly profit and loss indexed performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity, and transferring, under binding call options, an equity interest in said commercial entity from an investor entity and all other shareholders to an employee stock ownership plan entity funded by said commercial entity, comprising:
a programmed digital electrical computer comprising a processor, an input device, an output device, and a memory, the processor being controlled by a program including
a. means for storing pre-determined (monthly profit and loss indexed) performance criteria for said commercial entity including management, operations, and commodity ordering performance criteria, and maintaining an account designated for commodity purchase transactions;
b. means for monitoring said commercial entity""s actual ongoing profit and loss indexed performance data, including management, operations, document-generation, and commodity ordering performance data; and
c. means for periodically comparing said monitored performance data against said pre-determined criteria to determine whether to authorize the electronic release of funds from said designated account for commodity purchases in response to said monitored commodity ordering activity data;
d. means for periodically comparing said actual performance of said commercial entity with said predetermined performance criteria and determining whether to transfer a predetermined quantum or equity in said commercial entity to said investor entity; and
e. means for permitting said employee-owned stock ownership plan entity to periodically exercise binding call options on equity transferred to the investor entity as a result of the purchases made.
Implementation can also be viewed as including a digital electrical computer system for monitoring the performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity through an independent entity, and transferring an equity interest in said commercial entity from an investor entity to said independent entity for subsequent transfer in accordance with pre-determined conditions to said investor entity under a binding call option by an employee stock ownership plan entity funded by said commercial entity, comprising:
a programmed digital electrical computer comprising a processor, an input device, an output device, and a memory, the processor being controlled by a program including
a. means for storing pre-determined monthly profit and loss performance criteria for said commercial entity including management, operations, and commodity ordering performance criteria, and maintaining an account designated for commodity purchase transactions;
b. means for monitoring said commercial entity""s actual profit and loss performance data, including management, operations, and commodity ordering performance data;
c. means for said independent entity to periodically compare said monitored performance data against said pre-determined criteria to determine whether to authorize the electronic release of funds from said designated account for commodity purchases in response to said monitored commodity ordering activity;
d. means for periodically comparing said actual performance of said commercial entity with said predetermined criteria to determine whether to transfer a predetermined quantum of equity in said commercial entity to said investor entity; and
e. means for permitting said employee-owned stock ownership plan entity to periodically exercise binding call options on equity transferred to the investor entity.
In either case, the program is adapted to such that; (1) said monitoring of said commercial entity""s actual commodity ordering performance data is performed electronically; (2) said monitoring of said commercial entity""s actual performance data is performed electronically; (3) said periodic comparison of said actual performance of said commercial entity with said predetermined performance criteria to determine whether to transfer a predetermined quantum of equity in said commercial entity to said investor entity, is performed electronically; and/or (4) said means for permitting said employee-owned stock ownership plan entity to periodically exercised binding call options on equity transferred to the investor entity, comprises electronic transaction processing.
Either of the above-mentioned systems can preferably be made by further including:
a. means for storing pre-determined risk assessment criteria for said commercial entity;
b. means for monitoring said commercial entity""s actual risk assessment data; and
c. means for periodically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual risk has exceeded, said pre-determined criteria and to generate an indication thereof.
Still more preferably, either system is made by further comprising
a. means for storing pre-determined risk assessment criteria for said commercial entity;
b. means for monitoring said commercial entity""s actual risk assessment data; and
c. means for periodically electronically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual risk has exceeded said pre-determined criteria and to generate an indication thereof.
The present invention also contemplates data structures, including computed necessary intermediates, and methods such as a computer-implemented method for monitoring the performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity, and transferring, under binding call options, an equity interest in said commercial entity, and transferring, under binding call options, an equity interest in said commercial entity from an investor entity to an employee stock ownership plan entity funded by said commercial entity, the method comprising:
a. storing pre-determined performance criteria for said commercial entity including management, operations, and commodity ordering performance criteria, and maintaining an account designated for commodity purchase transactions;
b. monitoring said commercial entity""s actual performance data, including management, operations, and commodity ordering performance data;
c. periodically electronically comparing said monitored performance data against said pre-determined criteria to determine whether to authorize the electronic release of funds from a designated account for commodity purchases in response to said monitored commodity ordering activity data;
d. periodically comparing said actual performance of said commercial entity with said predetermined performance criteria and determining whether to transfer a predetermined quantum of equity in said commercial entity to said investor entity; and
e. permitting said employee-owned stock ownership plan entity to periodically exercise binding call options on equity transferred to the investor entity.
More preferably, the invention can be viewed as a computer-implemented method for monitoring the performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity through an independent entity, and transferring an equity interest in said commercial entity from an investor entity to said independent entity for subsequent transfer in accordance with pre-determined conditions to said investor entity under a binding call option by an employee stock ownership plan entity funded by said commercial entity, the method comprising:
a. storing pre-determined performance criteria for said commercial entity in cluding management, operations, and commodity ordering performance criteria, and maintaining an account designated for commodity purchase transactions;
b. monitoring said commercial entity""s actual performance data, including management, operations, and commodity ordering performance data;
c. said independent entity periodically electronically comparing said monitored performance data against said pre-determined criteria to determine whether to authorize the electronic release of funds from said designated account for commodity purchases in response to said monitored commodity ordering activity.
d. periodically comparing said actual performance of said commercial entity with said predetermined criteria to determine whether to transfer a predetermined quantum of equity in said commercial entity to said investor entity; and
e. permitting said employee-owned stock ownership plan entity to periodically exercise binding call options on equity transferred to the investor entity.
In either case, the method is preferably carried out such that (1) said monitoring of said commercial entity""s actual commodity ordering performance data is performed electronically; (2) said monitoring of said commercial entity""s actual performance data is performed electronically; and/or (3) said means for permitting said employee-owned stock ownership plan entity to periodically exercise binding call options on equity transferred to the investor entity, comprises electronic transaction processing.
Also in either case, the method can be carried out as further comprising
a. storing pre-determined risk assessment criteria;
b. monitoring said commercial entity""s actual risk assessment data; and
c. periodically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual risk has exceeded said pre-determined criteria and to generate an indication thereof.
Further, in either case, the method can be carried out as further comprising
a. means for storing pre-determined risk assessment criteria for said commercial entity;
b. means for monitoring said commercial entity""s actual risk assessment data; and
c. means for periodically electronically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual risk has exceeded said pre-determined criteria and to generate an indication thereof.
Yet another way of viewing the present invention is a computer-implemented method for monitoring the performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity through an independent entity, and transferring an equity interest in said commercial entity from an investor entity to said independent entity for subsequent transfer in accordance with pre-determined conditions to said investor entity under a binding call option by an employee stock ownership plan entity funded by said commercial entity, the method comprising:
a. storing pre-determined performance criteria, including management, financial, and operating data, data representing ERISA-imposed limitations on funds and equity transfers, data representing commodity ordering information, data representing equity available for transfer via said method, and predefined criteria for the transfer and release of said equity;
b. maintaining at least one account designated for carrying out said method through which equity and funds are transferred;
c. transferring funds from said investor entity to said designated account and transferring equity in said commercial entity from said commercial entity to said designated account in accordance with predefined stored conditions;
d. periodically storing information regarding actual financial and operating performance of said commercial entity;
e. storing commodity ordering information for requesting a commodity purchase:
f. comparing and analyzing said actual financial and operating performance data to said commercial entity and said predetermined performance criteria to determine whether to fund a pending commodity order transaction, to determine whether performance is satisfactory or unsatisfactory, and to indicate whether investor""s funds are at risk whether funds should be returned to investors or whether commodity funding should be suspended;
g. based on the results of step f, conditionally initiating commodity purchase and electronically transferring funds from said designated account to the purchasing account for the benefit of the commodity supplier for the purchase of said commodity for delivery to said commercial entity if said evaluation of the performance of said commercial entity is satisfactory;
h. evaluating said actual operating and financial performance data and said predefined performance criteria, including ERISA-imposed conditions and limits and indicating amount of pre-tax contributions, and indicating the amount of equity to be released for transfer to investor equity;
i. storing information indicating funding levels for pre-tax payroll contributions, pre-tax dividends, and post-tax contributions authorized for transfer to said employee stock ownership plan;
j. periodically transferring equity from said investor entity to said employee stock ownership plan in accordance with said predefined criteria for the transfer and release of said equity and transferring funds from said employee-owned stock purchase program to said investor entity; and
k. repeating the steps of the method until all of said authorized equity has been transferred to said employee stock ownership plan.
The methods outlined above can be further carried out such that (1) said predetermined performance criteria are periodically adjusted; (2) said pre-determined performance criteria are stored electronically; (3) said transfer of funds from said investor entity to said designated account is performed electronically; (4) said transfer of equity in said commercial entity from said commercial entity to said designated account is performed electronically; (5) said periodic storage of information regarding actual financial and operating performance of said commercial entity is performed electronically; (6) said comparison and analysis of said actual financial and operating performance data and said stored performance criteria, are performed electronically; (7) said storage of commodity ordering information is performed electronically; (8) said commodity purchase transaction is performed electronically; (9) said evaluation of said actual operating and financial performance data and said predefined performance criteria and indicating the amount of equity to be released for transfer to investor equity, is performed electronically; (10) said storage of information indicating funding levels for pre-tax payroll contributions, pre-tax dividends, and post-tax contributions authorized for transfer to said employee stock ownership plan, is performed electronically; (11) periodic equity transfer from said investor entity to said employee stock ownership plan, is performed electronically; and/or (12) said periodic transfer of funds from said employee-owned stock purchase program to said investor entity, is performed electronically.
Still further, the invention can be preferably viewed as including a computer-implemented method of monitoring the performance of an equity-issuing commercial entity and for purchasing a predetermined percentage of one or more commodities used by said commercial entity through an independent entity, and transferring an equity interest in said commercial entity from an investor entity to said independent entity for subsequent transfer in accordance with pre-determined conditions to said investor entity under a binding call option by an employee stock ownership plan entity funded by said commercial entity, the method comprising:
a. electronically storing pre-determined performance criteria, including management, financial, and operating data, data representing ERISA-imposed limitations on funds and equity transfers, data representing commodity ordering information, data representing equity available for transfer via said method, and predefined criteria for the transfer and release of said equity.
b. maintaining at least one account designated for carrying out said method through which equity and funds are transferred;
c. electronically transferring funds from said investor entity to said designated account and transferring equity in said commercial entity from said commercial entity to said designated account in accordance with predefined stored conditions;
d. periodically electronically storing information regarding actual financial and operating performance of said commercial entity;
e. electronically storing commodity ordering information for requesting a commodity purchase;
f. electronically comparing and analyzing said actual financial and operating performance data of said commercial entity and said pre-determined performance criteria to determine whether to fund a pending commodity order transaction, to determine whether performance is satisfactory or unsatisfactory, and to indicate whether investor""s funds are at risk, whether funds should be returned to investors or whether commodity funding should be suspended;
g. based on the results of step f, conditionally initiating commodity purchase and electronically transferring funds from said designated account to the commodity supplier for the purchase of said commodity for delivery to said commercial entity if said evaluation of the performance of said commercial entity is satisfactory;
h. electronically evaluating said actual operating and financial performance data and said predefined performance criteria, including ERISA-imposed conditions and limits and indicating amount of pre-tax payroll contributions, pre-tax dividends, and post-tax contributions, and indicating the amount of equity to be released to transfer to investor equity;
i. electronically storing information indicating funding levels for pre-tax payroll contributions, pre-tax dividends, and post-tax contributions authorized for transfer to said employee stock ownership plan;
j. periodically transferring equity from said investor entity to said employee stock ownership plan in accordance with said predefined criteria for the transfer and release of said equity and transferring funds from said employee stock ownership plan to said investor entity; and
k. repeating the steps of the method until all of said authorized equity has been transferred to said employee owned stock purchase plan.
As with any of the foregoing methods, each can be carried out such that (1) said monitoring of said actual performance data is performed by said independent entity; and/or (2) said comparison of said actual performance data of said commercial entity with said predetermined criteria to determine whether to transfer a predetermined quantum of equity in said commercial entity, is performed by said independent entity. Each method can also include
a. storing pre-determined risk assessment criteria for said commercial entity;
b. monitoring said commercial entity""s actual risk assessment data; and
c. periodically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual management and operations risk to said investor entity has exceeded said pre-determined criteria and to generate an indication thereof. Preferably each also includes preventing, in response to operator input, said electronic transfer of funds.
Likewise, each said digital electrical computer system can be controlled by a program including
a. means for storing pre-determined risk assessment criteria for said commercial entity;
b. means for monitoring said commercial entity""s actual risk assessment data; and
c. means for periodically comparing and analyzing said actual risk assessment data with said predetermined risk assessment criteria to generate an indication of whether actual management and operations risk to said investor entity has exceeded said pre-determined criteria and to generate an indication thereof.
Likewise, each said digital electrical computer system can include program means for preventing, in response to operator input, said electronic transfer of funds.